GE Shares Jump on Hint of Dividend Cut

Shares of General Electric jumped Monday as investors cheered the possibility the conglomerate may eventually cut its dividend, adding billions of dollars to its balance sheet, two analysts said.

GE, which makes everything from locomotives to household appliances, said Friday it will pay its regular 31-cent-per share dividend. However, Chief Executive Jeff Immelt held open the possibility the Fairfield, Conn.-based company could cut the dividend in the future. He said he and the board of directors "will continue to evaluate the company's dividend level for the second half of 2009."

GE is the parent company of CNBC.

Shares were up about 14 percent mid-day. The stock has traded between $10.66 and $38.52 over the past 52 weeks, and is off 31 percent since the start of the year.

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Cutting the dividend would give the conglomerate more cash to shore up its troubled financial business and possibly preserve its coveted "AAA" rating.

Ratings agencies Moody's Investors Service and Standard & Poor's are reviewing their ratings of GE. Many analysts suspect the company will lose its "AAA" rating, largely due to the problems at GE Capital. They also are skeptical that GE will be able to generate enough cash to make the payments.

Credit ratings reflect a company's ability to repay debt and are used by lenders to set the terms of borrowing. Higher ratings make it cheaper for companies to borrow money.

Joel Levington, director of corporate credit at Hyperion Brookfield Asset Management Inc. in New York, said Immelt's comments represent a new direction for GE.

"It's certainly not as strong as what's been said before," he said in an interview. "It's coming to a head. They have to make a decision one way or the other."

GE paid $11.5 billion in its dividend last year and cutting it in half still leaves the company with more cash than its industrial peers, Levington said.

Eric Boyce, portfolio manager of Hester Capital Management in Austin, Texas, said GE is being unrealistic in holding out against a dividend cut.

"There's no sensible reason they shouldn't cut it like everyone else," he said in an interview.

GE said in September it will maintain its 31 cent-per-share quarterly dividend through 2009, the first time in 32 years shareholders will not get a dividend boost. But the economy has deteriorated sharply since then, with the problems affecting GE's massive financial unit spreading to its industrial businesses.

"The market is saying, 'Hey we realize this an extraordinary time and for GE to break rank from tradition is not necessarily a bad thing,'" Boyce said.

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